Facing threats including shaky consumer confidence, and potential new tariffs on imported autos and auto parts, it looks like U.S. auto sales will be down in the fourth quarter, down for 2019 overall, and down again next year, according to Cox Automotive.
One wild card: Automakers could resort to “fire sale” incentives at year end, but Cox Automotive doubts it.
“Tariffs are still on the table,” vs. China, the European Union, and potentially even Japan, said Jonathan Smoke, chief economist for Cox Automotive.
In a webinar on Sept. 26, Smoke said he’s also concerned about consumer confidence. “You’re starting to see the consumer worry about the future. Eventually, that translates to slower spending on big, durable items like automobiles,” he said. “That’s obviously the most negative switch this year.”
Mercedes-Benzes on their way to export via the port of Bremerhaven, Germany.
Specifically, Smoke pointed out that the University of Michigan Consumer Sentiment Index was 92.0 for early September, a slight rebound after a drop in August, and down from 100.1 in September 2018. (The index is relative to December 1966 = 100.)
Separately, The Conference Board Consumer Confidence Index also decreased in September, following a slight decline in August. The Index now stands at 125.1 (1985=100), down from 134.2 in August.
Besides tariffs, Smoke said credit availability is another threat to auto sales, at least for customers with spotty credit histories. Disqualifying the riskiest customers is healthy for auto lender loan portfolios, but ruling anybody out makes it harder to grow, he said.
Auto lenders are tightening their approval standards because they’re worried about an increase in delinquencies for customers with subprime credit. In fact, interest rates are on the rise for subprime auto loans, even though the Federal Reserve has lowered rates twice so far this year, Smoke said. Conversely, well-qualified buyers are seeing slightly cheaper interest rates, he said.
Cox Automotive predicted U.S. auto sales of 16.8 million for 2019, and 16.5 million in 2020. To put that in context, in 2018 U.S. auto sales were 17.3 million, up just 0.6% from 2017.
In 2017, U.S. auto sales were down 1.8 percent to 17.2 million. That was the end of a record run of seven years of annual increases in a row, dating back to 2009, the bottom of the Great Recession.
Charlie Chesbrough, Cox Automotive senior economist, said it’s likely auto manufacturers would increase incentives to improve sales numbers in the fourth quarter, but not radically.
“I think there will be elevated incentives at a minimum, through the end of the year,” Chesbrough said. “I don’t think I see a fire sale approach, but I do think I see increased incentives the rest of the year.”
